UK Economic Decline in Q2 Less Than Initially Estimated

THE TAKEAWAY: UK Q2 GDP revised higher to -0.5% in second estimate -> Slowing economy provides case for further QE -> Sterling reverses Wednesday’s rally

The third straight quarter of economic contraction in the United Kingdom was not as bad as originally estimated, according to a revised estimate of the second quarter gross domestic product that was provided by the UK Office for National Statistics.

The UK GDP decline was revised to 0.5% in the second estimate from the original estimate of -0.7%, this was as expected. The annual economic decline was revised to -0.5% from -0.8% in the first estimate, this was slightly better than expected.

UK private consumption was down 0.4% in the second quarter, while government spending remained steady. Production industries output fell 0.9% in the quarter, while services output fell 0.1%, and construction output fell 3.9%.

On the positive size, employee compensation rose by 1.8% in the second quarter. Imports to the UK were up 1.4% while exports fell 1.7%.

The weak UK economy has led BoE members to consider further quantitative easing, according to this month’s minutes. BoE’s Weale reaffirmed the bank’s QE considerations yesterday. Therefore, continued weakness in the UK economy could lead to further stimulus, which would be negative for the British Pound but positive for other risk correlated assets.

However, the less severe economic contraction estimate did not boost the Pound, as the revision was mostly as expected. GBPUSD has slowly erased most of the rally that followed the release of the FOMC minutes on Wednesday and is currently trading slightly below 1.5850. There has been little congestion between 1.5800 and 1.5900 over the past few months, but each key level could provide support and resistance respectively.

GBPUSD 15-minute: August 24, 2012

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